Chambers Industries has a market capitalisation of $800 million and 250 million shares outstanding. The management of this firm plans to raise further capital through a rights issue. Which of the following rights schemes will raise the most money, if all shareholders exercise their rights?

Question

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The total amount of money raised is the number of new shares issued multiplied by the subscription price. 
Option A: 5 rights to purchase 2 shares will result in the issuance of 500 million shares (5 rights x 2 shares x 250 million outstanding shares) at a subscription price of $1.50, raising a total of $750 million (500 million new shares x $1.50 subscription price). 
Option B: 3 rights to purchase 2 shares will result in the issuance of 375 million shares (3 rights x 2 shares x 250 million outstanding shares) at a subscription price of $1.80, raising a total of $675 million (375 million new shares x $1.80 subscription price). 
Option C: 2 rights to purchase 1 share will result in the issuance of 250 million shares (2 rights x 1 share x 250 million outstanding shares) at a subscription price of $1.60, raising a total of $400 million (250 million new shares x $1.60 subscription price). 
Option D: 4 rights to purchase 3 shares will result in the issuance of 1000 million shares (4 rights x 3 shares x 250 million outstanding shares) at a subscription price of $2.00, raising a total of $2000 million (1000 million new shares x $2.00 subscription price). 
Therefore, option D will raise the most money.

Chambers Industries Has a Market Capitalisation of $800 Million and 250